UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 37761 / September 30, 1996
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 835 / September 30, 1996
ADMINISTRATIVE PROCEEDING
File No. 3-9131
____________________________________
: ORDER INSTITUTING
In the Matter of : PROCEEDINGS AND OPINION
: AND ORDER PURSUANT TO
MONTE S. COLBERT, CPA, : RULE 102(e) OF THE
: COMMISSION'S RULES OF
Respondent. : PRACTICE
___________________________________:
I.
The Securities and Exchange Commission (the "Commission")
deems it appropriate and in the public interest that public
administrative proceedings be and they hereby are instituted
against Monte S. Colbert, CPA, pursuant to Rule 102(e)(1)(ii) of
the Commission's Rules of Practice.-[1]-
II.
In anticipation of the institution of these administrative
proceedings, Colbert has submitted an Offer of Settlement which
the Commission has determined to accept. Solely for the purposes
of these proceedings and any other proceedings brought by or on
behalf of the Commission or to which the Commission is a party,
prior to a hearing pursuant to the Commission's Rules of
Practice, and without admitting or denying the facts, findings,
or conclusions herein, Colbert consents to entry of the findings,
and the imposition of the remedial sanctions set forth below.
---------FOOTNOTES----------
-[1]- Rule 102(e)(1) provides in relevant part that the
"Commission may . . . deny, temporarily or permanently, the
privilege of appearing or practicing before it in any way to any
person who is found by the Commission after notice and
opportunity for hearing in the matter . . . (ii) to be lacking in
character or integrity or to have engaged in unethical or
improper professional conduct."
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III. FINDINGS
On the basis of this Order and Colbert's Offer of
Settlement, the Commission finds the following:-[2]-
Monte S. Colbert, age 40, is a certified public accountant
licensed by the State of New York. Among other employment, from
1989 until 1994, Colbert audited the financial statements of a
registered broker-dealer as a sole practitioner. This Opinion
and Order relates to Colbert's conduct in auditing the 1991
through 1993 financial statements of that broker-dealer.
Rule 17a-5 under the Securities Exchange Act of 1934
requires a broker-dealer to file with the Commission annual
reports that are audited by an independent public accountant.
The broker-dealer first engaged Colbert to audit its 1989
financial statements. For each audit year thereafter until 1993,
Colbert conducted the audit of the broker-dealer. Each of the
audit reports, which were dated February 12, 1992, February 13,
1993, and February 25, 1994, stated that the audits were
conducted in accordance with generally accepted auditing
standards ("GAAS") and that the firm's financial statements were
presented fairly in conformity with generally accepted accounting
principles.
Near the end of 1991, Colbert inquired about working for the
broker-dealer as a broker. The broker-dealer agreed to sponsor
Colbert for the licensing examination given by the National
Association of Securities Dealers, Inc. ("NASD"). Colbert was
hired by the broker-dealer to become a salesperson on January 13,
1992, and he passed the NASD's Series 7 examination on February
5, 1992. Between the date he passed the NASD's examination and
February 1, 1994, Colbert was responsible for initiating
transactions for certain customers of the broker-dealer and
received commissions in connection with those transactions.
Therefore, beginning with his engagement for the year-end 1991
audit and continuing through his engagement for the year-end 1993
audit, Colbert was employed by the broker-dealer firm.
The audits of a broker-dealer's annual financial statements
must be conducted in accordance with GAAS, and the auditor must
be independent in compliance with Section 210.2-01(b) of
Regulation S-X. GAAS requires auditors to be independent with
respect to their clients. American Institute of Certified Public
Accountants, Codification of Statements on Auditing Standards AU
---------FOOTNOTES----------
-[2]- The findings herein are made pursuant to the Offer
of Settlement submitted by Colbert and are not binding on any
other person or entity named as a respondent in this or any other
proceeding.
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220. An auditor's independence is impaired if "[d]uring the
period covered by the financial statements, during the period of
the professional engagement, or at the time of expressing an
opinion, [the auditor] . . . [w]as connected with the enterprise
. . . in any capacity equivalent to that . . . of an employee."
American Institute of Certified Public Accountants, Code of
Professional Conduct Rule 101, Interpretation 101-1.B. The
Commission requires compliance with substantially the same
standard in Section 210.2-01(b) of Regulation S-X. See Rules
17a-5(f)(3) and (g)(1).
Colbert did not comply with these independence requirements
in auditing the broker-dealer's 1991, 1992, and 1993 financial
statements.
Based on the foregoing, the Commission finds that Colbert
engaged in improper professional conduct within the meaning of
Rule 102(e)(1)(ii) of the Commission's Rules of Practice.
IV. ORDER
Accordingly, IT IS HEREBY ORDERED that:
Pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of
Practice, Colbert is denied the privilege of appearing or
practicing before the Commission as an accountant.
By the Commission.
Jonathan G. Katz
Secretary